A wave of risk aversion is flooding financial markets this afternoon after Beijing announced it would apply additional tariffs of between 5% and 10% on $75 billion of US imports from September.
This bombshell development is set to fuel concerns over sizzling US-China trade tensions threatening global growth and stability. With this news being released just before Jerome Powell’s keynote speech, investors should fasten thier seatbelts and prepare for potential volatility on Friday afternoon.
Market players are scattering away from riskier assets and stampeding to safe-haven investments such as the Japanese Yen and Gold ahead of Powell’s speech.
Technical traders will continue to closely observe how the USDJPY behaves around the 106.50 regions. An appreciating Yen should open the doors towards 106.00.
Gold rebounds on risk aversion
Gold is back in fashion on Friday with prices trading towards $1505 as escalating trade tensions accelerate the flight to safety.
For as long as global recession fears, trade uncertainty and Brexit among many other geopolitical risk factors weigh on risk sentiment, Gold remains shielded from downside shocks. Where the precious metal concludes this week will be influenced by how markets react to Jerome Powell’s speech at Jackson Hole later on today. Should he adopt an aggressively dovish stance and reinforce market expectations of a September rate cut, Gold is seen rebounding back above $1525.
Oil influenced by demand side concerns
The drivers influencing Oil markets have shifted from supply-side to demand-side concerns. This was confirmed on Friday after US-China trade disputes sent oil prices crashing towards $53.50.
Fears over slowing world growth denting demand for crude should ensure Oil prices remain depressed in the short to medium term. Another factor seen impacting Oil prices will be the value of the Dollar which continues to gain on safe-haven flows. The combination of Dollar strength and demand-side concerns have the potential to send both WTI and Brent lower in the week ahead. Focusing on the technical picture, WTI Oil remains under pressure on the daily charts.
A breakdown below $55.00 should open the doors towards $54.00 and $52.00 in the near term.
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